Kohl’s shares rise as It lifts full year profit outlook

Kohl’s Corp. raised its full-year profit outlook as the retailer trims expenses and reduces inventory levels amid a pullback from consumers.

The company now sees adjusted earnings per share of as much as $2.25, up from as much as $1.85 previously and well above Wall Street’s expectations. The company says its guidance no longer includes the potential negative impact from regulatory changes to credit card late fees by the Consumer Financial Protection Bureau.

The retailer slashed its comparable sales guidance, however, after a tenth straight quarter of declines. Chief Executive Officer Tom Kingsbury said there was continued “softness” in Kohl’s core business last quarter but categories such as gifting, impulse and home decor did well.

“The middle income customer, they’re really stressed in terms of what they’re dealing with right now,” he said during a call with analysts.

The retailer will also emphasize lower prices in its marketing message as core customers remain “squeezed” by higher living costs. Chief Financial Officer Jill Timm said that shoppers were choosing to buy less in general or spending money on a big ticket item instead.

The stock rose 6.2% at 10:15 a.m. in New York trading. Kohl’s shares fell 32% this year through Tuesday’s close, compared with a 17% gain for the Russell 1000 Index.

The company has struggled to attract shoppers who have become increasingly picky after years of inflation, despite frequent discounts and promotions. Results from retailers including Walmart Inc., Target Corp. and T.J. Maxx-owner TJX Cos. show a consumer that is increasingly focused on essentials and seeking deals, but Kohl’s has struggled to capitalize on that trend.

“This is a classic death spiral where poor performance leads to cost cutting and crimping, which then leads to poor execution, which then leads to falling sales,” wrote Neil Saunders, managing director at GlobalData, in a note.

To help drive traffic and spur sales, Kohl’s introduced tie-ups with brands like Sephora and Babies“R”Us, which it began integrating this quarter, with plans to bring the baby products seller to about 200 of its locations in the fall. Executives said that Sephora’s shop-in-shops have attracted new customers about a third of its shoppers include another product from Kohl’s in their basket.

While the Menomonee Falls, Wisconsin-based company has seen some success with Sephora, something it seeks to replicate with Babies“R”Us, “ultimately, salvation does not lie in relying on the strength of other brands,” Saunders said.

Kohl’s stock plummeted the most on record in late May after the retailer slashed its full-year guidance and missed on nearly every metric in its first-quarter results. At the time, the company said that its clearance sales had declined, with Kingsbury saying high interest rates and inflation were pressuring shoppers.